HSBC Seeks ‘Turbo Boost’ in Turkey

HSBC, Europe’s largest bank, is looking to tap Turkey’s robust economic growth to propel its fortunes and turn around a local unit that in the past decade has lost significant business to domestic lenders.

And an acquisition is its best bet.

The London-based banking giant, which stuck with Turkey as it pulled out of 52 countries and businesses after the global financial crisis, wants to double its market share to 5%, HSBC Turkey’s Chief Executive Martin Spurling said in an interview with The Wall Street Journal. The bank may reach that goal within 10 years by expanding in Turkey’s top-10 cities and improving its performance in lagging products such as mortgages, personal lending and deposits, he added.

But HSBC’ own resources have been slow in driving growth, and purchasing a local bank could get the lender what it wants. Indeed, that’s the strategy HSBC used in 2001, when it took advantage of a financial crisis here to acquire Turkey’s then-fifth largest lender, Demirbank, and launch its consumer banking operations. HSBC has since dropped to 11th in domestic rankings.

“We’re in that horrible no-man’s-land, where we’re too big to be niche and too small to be big,” Mr. Spurling said. “If an acquisition came up, absolutely we’d be keen on it, because that’s your turbo boost to get you where we want to get to–which is that 5% critical mass.”

Turkey is expected be one of the fastest growing economies in the world, with gross domestic product expected to climb to the world’s 12th biggest by 2050, HSBC’s Mr. Spurling said. That’s a more conservative forecast than the government’s, which is seeking to triple the $786 billion GDP in the next decade and join the world’s top-10 economies.

Yet the acquisition that would boost HSBC’s expansion is proving elusive.

In the past year alone, there have been two opportunities. Citibank sold its retail arm in Turkey in April to Denizbank. And, Istanbul-based Denizbank was itself acquired last year by Russia’s largest lender Sberbank.

Mr. Spurling said Citi’s unit was “too small” and declined to comment on why HSBC didn’t buy Denizbank, a top-10 bank in Turkey have more than doubled the lender’s assets.

In order to be attractive, an acquisition in Turkey would have to help HSBC get to or maintain a 12% to 15% return on capital, have a cost-income ratio of 48% to 52% and assets-to-deposit ratio of 90% or less, Mr. Spurling said.

That leaves HSBC looking for more deals and meanwhile seeking to build up its operations by expanding its balance sheet with measures such as injecting $470 million of capital as subordinated debt in the last 18 months to increase the bank’s total capital position in Turkey to $1.66 billion.

“Everyone wants to be in Turkey, no one wants to sell,” Mr. Spurling said.

“We have a chance on an organic growth basis to become one of the big players. Does that mean number one to five? No, not unless we buy something.”